Appetite for class action prompts procedural changes

Jon is a litigator and acts for clients in the professional indemnity, and directors' and officers' (D&O) space.

A new practice note in the Federal Court and amendments to the civil procedure regime in Queensland are the latest responses to the growing phenomenon of class action litigation. The changes are indicative of Parliament and the judiciary's appetite to step in and regulate the conduct of representative proceedings. We provide a summary of these developments, together with a snapshot of two recent significant decisions that will impact future class actions.

New class action regime

In November 2016, legislation was passed by Queensland Parliament introducing a comprehensive statutory procedure to facilitate and manage representative proceedings (or class actions). The new regime is an unprecedented move for the jurisdiction—until now, sophisticated rules concerning the conduct of class actions in Queensland have been lacking. This has meant a number of class action suits, including the notable class action relating to the 2011 Queensland floods, have been commenced in other states or the Federal Court, rather than locally. Only the Sandhurst Trustees class action has been filed in a Queensland registry since 2015.

Although yet to come into effect, the scheme is to be introduced by the insertion of a new Part 13A in the Civil Proceedings Act 2011 (Qld), titled "Representative proceedings in Supreme Court". It is modelled on similar regimes, which apply in the Federal Court and the Supreme Courts of NSW and Victoria, and sets out rules on commencing and discontinuing a representative proceeding, standing, class membership, settlement, costs, appeals and the distribution of funds to class members.

The legislation is expected to commence shortly, on proclamation. Once it comes into force, we expect to see a significant rise in the number of class actions commenced in Queensland by local and national firms.

Federal Court practice note reform

The procedure regulating class actions in the Federal Court has also experienced significant change, with the introduction of a new practice note in late 2016. "Class Actions Practice Note (GPN-CA)" sets out in detail how class actions commenced in the federal jurisdiction will be managed. It is to be read in conjunction with the existing central practice note governing all proceedings in the Federal Court.

The new practice note strives to enable tailored case management, recognising the complexity and practical issues that often arise in class actions. For instance, in addition to the docket judge allocated to each class action (whose role is principally to preside over the trial in the matter) in some cases a case management judge will also be appointed. The case management judge's role is to manage the matter to trial and hear any applications that may be more appropriately heard by a judge who is not involved in the trial. The practice note also provides for fairly structured and regular case management hearings before the Court. The Court's expectations on the disclosure of litigation funding and costs agreements and the content of opt-out notices are also set out in greater detail than before.

Snapshot of key cases

Two decisions were handed down in late 2016 by the Federal Court, which have significant implications for the conduct of class actions and, in particular, their commerciality for litigation funders.

The Full Federal Court approved a "common fund" order in proceedings involving both funded and unfunded class members. This order required all class members to contribute to the legal costs and commission of the litigation funder from the proceeds of any settlement or judgment. Such a contribution was required regardless of whether the class member is a party to the litigation funding agreement.

This decision provides funders with a stronger argument for obtaining common fund orders in the future. In some instances, such an order may make the difference between an action being commercially viable for a funder or not. However, the Court determined that the funding commission rate must still be judicially approved at the appropriate time (for instance, either upon settlement or at the hearing). It established a condition that, when making a common fund order, no class member can be worse off than he or she would have been had the order not been made. The Court also indicated that class members who wished to opt out of the proceedings after the making of the common fund order, would be given an opportunity to do so.

Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433

In this case, the Plaintiff argued that if the Court considered that the funding commission rate agreed between the Plaintiff and the funder was excessive, the Court's power was limited to disallowing the settlement on that ground. Justice Murphy disagreed, holding that the Court had power to approve a settlement but could disallow, vary or reduce the funding commission or quantum in appropriate circumstances. Ultimately, he found in favour of the Plaintiff that the funding commission set by the litigation funder (between 26% and 30%, totalling $6.78 million) was fair and reasonable. This decision nevertheless indicates that the Court does have the power to disallow or reduce the funding commission rate in the interests of class members when deciding whether to approve a class action settlement.

We would like to acknowledge the contribution of Verity Scandrett to this article.